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The Role of Distribution of the Income Shares of Individuals in Tradables and Nontradables on Exchange Rate Fluctuations and Delay of Stabilizations

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  • Aysan, Ahmet Faruk

Abstract

This paper shows that exchange rate alignments are also used for the redistribution of income among different groups. The heterogeneous impacts of stabilization policies lead to formation of various coalitions throughout the evolution of stabilization programs. These coalitions can produce unsustainable economic policies at the expense of other groups. The model categorizes these various groups with respect to their shares in total production of tradables and nontradables. An increase in the relative prices of nontradables benefits the poor more than the rich and middle classes. In addition to the poor, the rich benefit from unsustainable macroeconomic polices by lending to the government and eventually escaping the cost of stabilization in the long run.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5485.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:5485

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Keywords: Stabilization policies; Overvaluation; Redistribution; Exchange Rate Fluctuations;

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Cited by:
  1. Aysan, Ahmet Faruk, 2006. "Distributional Effects of Boom-Bust Cycles in Developing Countries with Financial Frictions," MPRA Paper 5484, University Library of Munich, Germany.

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